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Keep your cool when marketing

Agriculture.com Staff 07/09/2012 @ 8:16am

By Cathy Ekstrand, Senior Market Advisor, Guest Columnist

Welcome to the dog days of summer ... Seriously! I can remember years ago before I became a market advisor that warm summer days seemed so blissful. This year, as the temperature heats up and summer gets into full swing, along come the stresses of a weather market.

Daily price moves of up limit one day, and then up the next, and the next, bring along with them the fear that at any moment a change in the weather could deflate the whole thing. Throw in USDA reports and European economy concerns, and the volatility is enough to weigh on the nerves of even the well-seasoned marketer.

Stay objective

This unfortunately has been a summer of the "haves and have nots" when it comes to rainfall. An early planting season has put some of the crops at greater risk than others as record high temperatures and lack of rain have fallen during peak reproductive stages for corn. No one knows for sure just how much the latest hybrids can tolerate when it comes to stress. And we won't know the final bushel count until fall. It can be safe to say, however, that the Midwest has suffered through recent drought conditions and yield loss has occurred.

It's very challenging to remain objective when it's your farm that hasn't seen a rain in a while. But that is what needs to be done, and you can do it with a little bit of advanced planning. Almost every year there is some type of weather rally in the summer. And more often than not, it's an opportunity that needs to be seized in order to take advantage of a good selling price or a place in which to hedge, even if we are afraid or uncertain.

It's the advanced planning and thinking about possible price scenarios and your strategies that makes decision-making in the moment of opportunity easier.

So what should you be thinking about? First, in the midst of this chaos, one needs to step back and look at the big picture, and how your farm fits into that picture.

  • Step back and look at where you are for sales this year. If you have received rain recently and have not made a sale since spring, this rally may give you an opportunity to price some more cash in order to raise your overall average.
  • If you are not comfortable making a cash sale based on your crop conditions, look to reward the rally with a fixed risk hedge such as buying a put option.
  • Think about what you will do as various price scenarios unfold. We all know that what goes up eventually will come back down. Maybe due to weather conditions we don't have to go as low as what was previously thought, but we know that at some point higher prices will offset demand, and prices could slide. Prepare for how you will act when that starts to happen.
  • Planning for price moves increases your confidence. If you go ahead and make a sale and still feel the desire to retain opportunity in case of an additional spike in prices, you could re-own that sale with a fixed risk purchase of a call option. Choose fixed-risk option strategies so you know what you are spending and where your risk lies.
  • Finally, the key to these volatile markets is to do things in increments. No one can predict where the top will be in a weather run market. So once you've made a sale, move forward and look ahead to the next opportunity.

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